February 2012

September 05, 2010

Health-care
costs are strangling our country. Medical care now absorbs eighteen per cent of
every dollar we earn. Between 1999 and 2009, the average annual premium for
employer-sponsored family insurance coverage rose from $5,800 to $13,400, and
the average cost per Medicare beneficiary went from $5,500 to $11,900. The
costs of our dysfunctional health-care system have already helped sink our auto
industry, are draining state and federal coffers, and could ultimately imperil
our ability to sustain universal coverage.

It’s no secret that the U.S. health system is hugely
expensive and growing more expensive every day. What have Americans gained by
paying more than twice as much for medical care as they did a decade ago? Gawande
says: not much. He continues:

The
health-care sector certainly employs more people and more machines than it did.
But there have been no great strides in service. In Western Europe, most
primary-care practices now use electronic health records and offer after-hours
care; in the United States, most don’t. Improvement in demonstrated medical
outcomes has been modest in most fields. The reason the system is a money drain
is not that it’s so successful but that it’s fragmented, disorganized, and
inconsistent; it’s neglectful of low-profit services like mental-health care,
geriatrics, and primary care, and almost giddy in its overuse of high-cost
technologies such as radiology imaging, brand-name drugs, and many elective
procedures.

And where is the system heading, even with the recent health
care reform?

At
the current rate of increase, the cost of family insurance will reach
twenty-seven thousand dollars or more in a decade, taking more than a fifth of
every dollar that people earn. Businesses will see their health-coverage
expenses rise from ten per cent of total labor costs to seventeen per cent.
Health-care spending will essentially devour all our future wage increases and
economic growth. State budget costs for health care will more than double, and
Medicare will run out of money in just eight years. The cost problem, people
have come to realize, threatens not just our prosperity but our solvency…If nothing is done, the United States is on
track to spend an unimaginable ten trillion dollars more on health care in the
next decade than it currently spends, hobbling government, growth, and
employment.

Now that the problem of major gaps in coverage is to a large
extent solved, the fundamental issue is out-of-control costs. What to do?

Reduce costs: The
traditional management option

If there is one thing that traditional management is good at,
it is cutting costs.

So a great temptation of the U.S. health care system is to say,
“Let’s have some real management here!” In other words, start applying the
cost-cutting practices of traditional management to health care.

What does this imply? Traditional management begins from the
idea that the purpose of an organization is to deliver goods and services, i.e.
in this case, health services. Productivity improvement is achieved through
cost reduction, often through economies of scale. Through outsourcing and
downsizing, the economies can be continued, albeit with declining returns.
Rules can be put in place. Processes can be established. Structures can be
built. Mistakes can be eliminated. If mistakes do occur, people can be blamed
and punished. A predictable and reassuringly linear environment can be built.
“The system” operates as a closed universe. The customer or patient is treated
as a thing to be manipulated (rather than a person with whom the firm has a
relationship) to buy the products and services generated by “the system”.
Similarly, the employees (doctors, nurses and technicians) are treated as “human
resources” to be mined and exploited and discarded as necessary.

There are three huge problems with this traditional approach
to management, even as it manages to reduce costs.

First the
hierarchy and the bureaucracy of Dilbert style management don’t draw on the
talents and energies of those doing the work so that workers become less and less productive.

Second the
approach frustrates the hell out of customers.
That’s because when the goal of the organization is to produce goods and
services, “customer service” is perceived as a cost center and something to be
cut, or even eliminated. So management is systematically undermining customer
service. As James Surowiecki put it in his New Yorker column, navigating the customer
service department can be harder than negotiating the Kafka’s Castle.

The entire scheme of management is antipathetic to innovation, because any significant innovation
risks de-stabilizing the simple, linear, finite world that has been created.
“The system” has become an end in itself. For much of the 20th Century,
this worked well enough. But the world change: now change and innovation have become inescapable imperatives, and traditional management doesn't deliver.

Moreover it leads on to Dilbert-cartoon style management.

Dilbert-cartoon style
management

Dilbert, the cartoon, was first published by Scott Adams on
April 16, 1989, but its intellectual origins came earlier. The skill set and
the attitudes of the Dilbertian manager were identified in a famous HBR article
in 1977: Abraham Zaleznik’s “Managers
and Leaders Are They Different?”Harvard Business Review. 1977, 82 (1), p74-81. The article has been
republished a number of times by HBR, as recently as just this week, showing
that HBR, at least, still thinks the piece relevant to today.

In the article, Zaleznik deftly describes the attitudes of
the Dilbertian manager. First, the manager focuses attention on procedure and
not on substance. Second, the manager communicates to subordinates indirectly
by “signals”, rather than clearly stating a position. Third, the manager plays
for time. With conflicting rules and procedures, and conflicts about priorities
between different senior managers, managers have no way of knowing what the
right answer is. CYA routines are played out, up and down the hierarchy.

These Dilbertian practices enable a middle level manager to
survive. Scott Adams has made a fortune by depicting how these practices play
out on a daily basis in large organizations around the world, while making
things steadily worse for both employees and customers. Traditional management
leads directly to Dilbert-cartoon-style management, and vicious circle of deteriorating organizational performance.

Reduce health care costs:
the radical management option

Fortunately there is a better way to reducing costs than by traditional
management. It’s called radical management. Firms managing in a radically
different way and focusing everyone in the organization on delighting the customers (patients)
by delivering more value sooner are able to operate at lower cost and
higher customer (patient) satisfaction. The conflict between worker and customer
satisfaction on the one hand and reducing cost on the other vanishes, as explained in George Stalk’s classic
HBR article: Time--The Next Source of Competitive Advantage by George
Stalk Jr. (Harvard Business Review, July-Aug. 1988).

How can costs go down when “customer service” is expanded to
the whole organization?

First, much of what happens in hierarchical bureaucracies and
Dilbert-cartoon style management is internally driven. Feeding the bureaucracy
entails huge costs. When a organization is truly focused on delighting
customers, then a lot of apparently essential work just evaporates. Much of
what happens in a hospital is driven by the hospital’s internal bureaucracy.

Second, delighting the customer often means doing less, not
more. Southwest Airlines doesn’t provide more services: instead, it focuses on
providing low-cost on-time travel, and consistently makes profits, while its
traditional competitors struggle in an out of bankruptcy.

In health care, much of the hugely expensive treatments that
are given in the last few months of life fail to prolong life and make the
quality of life for the patient far worse. Atul Gawande in his New Yorker article,
Letting
Go, argues persuasively that wiser decisions based on authentic
conversations with the patients and their families would lead to drastic
savings—something that would be impossible under the tactics of traditional
management.

Similarly, a large proportion of the high costs of the U.S.
health system are due to lifestyle issues—diet, exercise, smoking, substance
abuse—to which traditional management practices can do nothing: by contrast,
radical management, through its focus on developing relationships with patients,
has a chance at influencing patients and so getting to the root cause of the
expenditure increases: the Fast Company article, Change or
Die.

Third, in hierarchical bureaucracy, only one in five workers
is fully engaged in his or her work. When everyone in the firm is motivated to
delight the customer, then the level of service is dramatically different. Although workers in the health sector may
start out idealistic and motivated, the stultifying rules and process of hierarchical bureaucracy can kill anyone’s
spirit. By contrast, radical management generates disciplined execution while also creating the space whereby those doing the work can exercise their full talents and energies.

Two examples of radical
management from the health sector

To see how this works in practice in the health sector, look
at two examples in the health sector drawn from Mark Graban’s book,Lean Hospitals : a center that provides outpatient chemotherapy treatment to
patients with cancer and a laboratory that provides test results to doctors.

Outpatient
chemotherapy

At the outpatient center, patients have appointments in the
morning to have their blood tests, see their oncologist, and make sure that
they are ready to receive a fresh chemotherapy treatment. If everything is
okay, they go to another part of the building where the chemotherapy treatment
is given intravenously to them while they sit in lounge chairs. It’s not a
pleasant experience, so patients like to come in the morning and get it over
with as soon as possible.

In principle, patients would have the blood tests, see the
doctor, receive their chemotherapy treatment (which often lasts for several
hours), and then go home. In practice, by the middle of the day, all of the
lounge chairs for patients were full and the nurses so busy rushing about,
monitoring the intravenous flows and changing the drugs for each patient, that
a number of patients would end up having to sit around waiting their turn. Why,
they would ask, did they have to sit around for so long in addition to several
hours of chemotherapy treatment? The complaints grew so loud from both patients
and staff that management was considering expanding the facility and hiring
more staff.

What has happened here? The chemotherapy center encountered
a phantom work jam! Analysis showed that too much work was coming into the
system, causing it to freeze. It also showed that although the center was
overloaded in the middle of the day, it was underused later in the afternoon.

Why was that? The oncologists worked in another part of the
building separate from the chemotherapy treatment center and didn’t see
patients waiting for too long. It turned out that they prepared their schedules
on the assumption that most patients would want to start their chemotherapy
treatment in the morning and get it over with. This would have made sense if
the center was dealing with only a few patients. But when all the oncologists
were proceeding on this basis, they unwittingly created a phantom work jam.

Once the problem was understood, the oncologists were able
to space their appointments more evenly throughout the day, and all the
patients could be treated immediately and finish their treatment without any
extra waiting. The nursing staff found the even workload easier to handle.
There was no need to expand the facility or hire extra staff. In order to give
a higher value experience to patients, they simply had to slow the intake.

Lab analyses

In another example from the health sector, a regional
laboratory at Kaiser Permanente laboratory would receive a giant cooler of
specimens from twenty-nine medical centers at 3:00 P.M. They would receive a
second one at 7:30 P.M. and a third one at 10:30 P.M. The lab facilities and
staff were overworked from late afternoon to early morning. In some cases,
doctors would be waiting for the results to decide what treatment step to
follow, but they wouldn’t receive news of abnormal results until three or four
o’clock in the morning.

Everyone was frustrated. The workers in the lab were
stressed by the sudden huge influxes of work. The doctors were frustrated
because they couldn’t get their results in a timely fashion and so critical
decisions were being delayed. And the patients were left worrying.

They were experiencing phantom work jams! Analysis of the
situation showed that both the staff and the lab were underused in the late
morning and early afternoon. After that, too much work was coming into the
system and causing it to freeze. The underlying problem lay in sending a few
large containers of specimens to the lab. This made sense to those responsible
for deliveries because it saved on the cost of shipping. But that decision to
optimize the cost of shipping caused suboptimal performance for the system as a
whole.

For the system as a whole to perform faster, the intake into
the lab had to slow down. The courier service was asked to deliver smaller and
more frequent batches of specimens starting in the morning. When they did that,
the cost of delivery increased, but the lab was able to complete most of its
work in the afternoon shift, thus reducing overtime. The lab was also able to
call doctors about most of the abnormal results by 5:00 P.M. or 6:00 P.M. the
same day, thus enabling the doctors to decide on the next steps in treatment
sooner and patients found out sooner what was needed.

Those who had originally organized the shipments of samples
were looking at work from the perspective of a thing: how to perform the
shipment more efficiently. They weren’t asking themselves: “Who are the people
we are doing this for, and how can we get more value for them sooner?” If they
had asked those questions and considered the needs of the doctors and patients,
they would have seen that bulking up deliveries was causing a phantom work jam.
They were making the work of the lab staff and the doctors more difficult,
causing frustration and delaying critical decisions for the ultimate client:
patients. By not having a clear line of sight to the people for whom they were
doing the work or focusing on getting more value to them sooner, they ended up
causing suboptimal performance.

September 03, 2010

I mentioned yesterday that James Surowiecki’s article in The
New Yorker repeated the common misperception that just-in-time manufacturing is
a device for cutting costs in factories.

How traditional management infected
lean

Lean or just-in-time manufacturing was invented by Toyota in
Japan and started spreading to the US in the 1980s. The implications were
described in a collaborative study which was published as The Machine That Changed the World in 1990. Interestingly, the
study found that the lean wasn’t a difference between Japanese factories and
U.S. factories. In fact, some of the best factories were in the United States,
and some of the worst were in Japan. What made the difference was how the
factory was run. Nor was it a question of who was running the plant. In the
study, the top-rated plant in terms of quality and productivity wasn't a
Japanese plant at all. It was a Ford plant in Hermosillo, Mexico.

The Machine That
Changed the World is in many ways a wonderful book, but it has also
contributed to the confusion as to what lean or just-in-time is simply a set of
production techniques aimed at eliminating waste. It is presented as a
low-level engineering issue—something to be deployed in factories—rather than a
strategic issue for top management as to how the entire firm should be
organized and run. When lean manufacturing techniques aimed at eliminating
waste are shoehorned into a traditional management environment, without respect
for people, the results are very different. The engine for continuous
self-improvement is missing.

Even when an oasis of excellence is established within an
organization being run on traditional management lines, as at Ford’s Hermosillo
plant, the experience doesn’t take root and replicate throughout the
organization because the setting isn’t congenial. The fundamental assumptions
of the Toyota approach are at odds with those of traditional management. So
Ford, instead of celebrating and replicating the Hermosillo plant, instead
crushed it and turned into a replica of the rest of its underperforming
factories in the US.

Genuine lean manufacturing, which was an early subset of radical
management, requires a fundamentally different kind of mind-set from
traditional management. It involves creating an environment in which the
organization draws on the full talents and capacities of the people who work
there. It means generating a context in which workers want to improve and are
given the means to do so, so that they do evolve into a high-performance mode.
It’s about powering up the internal energy of teams so that they transcend
their limitations and create products or services that generate client delight.
When a firm like Toyota makes this its foundation and embeds it in the corporate
culture, it operates at higher levels of productivity, wins market share from
competitors, and delights its customers.

How traditional management
infected teams and teamwork

Just as traditional management thinking infected lean, so it
also infected teams and teamwork.

As early as the 1920s, Mary Parker Follett was giving
lectures at Harvard Business School and Oxford University on the principle of
noncoercive power sharing and emphasizing “power with” rather than “power
over.”

But management was quick to use the language of teams to its
existing hierarchical practices. Work could be made to sound like fun and
games. The language of teams could convey the idea that the team members are
all in this together, engendering excitement and catering to the human need to
belong. It could conjure up dramatic feats of excellence and the desire for
perfection. To have a coach, rather than a boss, carried with it the promise of
helping people become better individuals rather than the soft despotism of
command-and-control.

The words of teamwork and coaching were often used without
the reality. Management called work groups “teams” yet remained in tight
control of who was on the team, what work was done and how it was done, and how
people would relate to each other. The use of the rhetoric of teams in this
setting was hypocrisy and led to worse workplaces, not better ones.

How traditional management
infects any good new idea

So traditional management infected lean, and turned it into
a caricature of what had been invented at Toyota.

Traditional management infected teams and teamwork, and
turned it into fake teamwork.

Traditional management did its best to do the same thing to
knowledge management, translating it into a top down, technology driven affair.

Traditional management takes any new idea and infects it
with the thinking of hierarchical bureaucracy and scalable efficiency. As a
result, the new idea fails to perform as promised, and traditional management
goes back to the old way of operating.

Breaking this maddening cycle requires a recognition that
these new ideas require genuine change. Leaders have to take off the spectacles
of traditional management view everything as an opportunity to increase
efficiency and cut costs. Leaders have to start seeing the world in terms of:
how can we add more value sooner? How can we do that through interactions
with the people doing the work and the people for whom the work is done?
Leaders have to learn to think, speak and act in a fundamentally different way.

To learn more about this radically different way of leading
and managing, go to:

September 02, 2010

In his New Yorker column, James Surowiecki
gives us a brilliant depiction of the frustrations of customers caused by traditional
management. We are, he says, “fed
up with inept service, indifferent employees, and customer-service departments
that are harder to negotiate with than Kafka’s Castle.”

Surowiecki runs through some familiar incidents,
such as Steven Slater’s slide down Jet Blue’s emergency shute into becoming a
folk hero, and Dave Carroll’s guitar that was broken by United Airlines and
resulted in a YouTube video song viewed by more than 9 million viewers.

In traditional
management, “most companies have a split personality when it comes to
customers. On the one hand, C.E.O.s routinely describe service as essential to
success. On the other hand, customer service is a classic example of what
businessmen call a “cost center”—a division that piles up expenses without
bringing in revenue—and most companies see it as tangential to their core
business, something they have to do rather than something traditional
management wants to do.”

In traditional
management, “even when businesses try to improve service, they often fail. They
carefully monitor call centers to see how long calls last, how long workers are
sitting at their desks, and so on. But none of this has much to do with
actually helping customers, so companies end up thinking that their efforts are
adding up to a much better job than they really do.”

According to Surowiecki, “the real problem
may be that companies have a roving eye: they’re always more interested in the
customers they don’t have. So they pour money into sales and marketing to lure
new customers while giving their existing ones short shrift, in an effort to
minimize costs and maximize revenue.”

The article ends
on an air of fatalistm: there is no escape from Kafka’s castle. We are doomed
to be frustrated because that’s the way things are. That’s the nature of organizations.

Fortunately this fatalism
is not warranted. Let’s look at some of the false assumptions in Surowiecki’s article
that underlie his pessimism.

Lean
manufacturing is not just elimination of waste

Surowiecki writes: “In some areas, the push for
efficiency can be a boon—the shift toward just-in-time production has helped
transform American manufacturing by making it leaner and more efficient. But
this approach isn’t well suited to solving customers’ problems.”

The misunderstanding
that lean manufacturing and just-in-time production is just about the
elimination of waste is widespread. It grew in part from the otherwise wonderful
book by James Womack and others, from The Machine That Changed the World: The Story of Lean Production. In reality, the techniques of lean
manufacturing and just-in-time production developed by Toyota involve teams of employees
in making suggestions for improving the way the work is done.It’s not just a production technique. It’s a
different way of running an organization. Cost reduction is a consequence, not
the goal. When lean manufacturing techniques aimed at
eliminating waste are shoehorned into a traditional management environment,
without respect for people, the results are very different. The engine for
continuous self-improvement and cost reduction is missing.

True customer focus
actually costs less

In traditional
management, the goal is the efficient production of goods and services. The
customer is a kind of after-thought and so customer service is perceived as a
cost.As Surowiecki notes, traditional managers are
not willing to invest more something that is perceived as pure cost. And so
customer service turns into dealing with Kafka’s castle.

However when firms like Southwest Airlines
focus the whole organization on delighting customers, then costs actually go
down. Why? First, much of what happens in hierarchical bureaucracies is
internally driven. Feeding the bureaucracy entails huge costs. When a company
is truly focused on delighting customers, then a lot of work evaporates. Second,
in hierarchical bureaucracy, only one in five workers is fully engaged in his
or her work. When everyone in the firm is motivated to delight the customer,
then the level of service is dramatically different. Third, delighting the
customer often means doing less, not more. Southwest Airlines doesn’t provide
more services: instead, it focuses on providing low-cost on-time travel, and
consistently makes profits, while its traditional competitors struggle in an
out of bankruptcy.

Change is
inevitable

The root cause of
customer frustration is not “the roving eye” of the modern manager. The problem
is structural. It’s the mental model of management that is being pursued, a
model of management that is taught in business schools, written about in
management textbooks and journals and practiced in most big organizations
today.

In traditional
management, the goal is the efficient production of goods and services. The
customer is a kind of after-thought and so customer service is perceived as a
cost.This way of managing was invented
in the 19th Century and it worked well for a good part of the 20th
Century.

But its day is
done. The numbers are startling. The rate of return on assets of US firms has
fallen to one quarter of what it was in 1965. The life expectancy of a Fortune
500 company is down to 15 years, and heading towards 5 years if there is no
change. Even on its own terms, traditional management is failing. The world has changed. The old way of managing
doesn’t work any more.

Fortunately, firms
managing in a radically different way and focusing everyone in the firm on delighting
the customers by delivering more value sooner are able to operate at lower cost
and
higher customer satisfaction. The conflict between customer service and reducing
cost vanishes.

The economics of
managing in the new way will be inexorable. Just as Toyota drove GM and Chrysler into
bankruptcy, and Southwest Airlines is consistently profitable while traditional competitors
stumble in and out Chapter 11, firms operating in the new way will put the
established firms out of business.

The only question is whether the change will happen quickly and
intelligently or slowly and painfully. To learn more about how to achieve the
former result and avoid the latter outcome, go to:

August 14, 2010

“It's only when you drop yesterday's
assumptions that you can glimpse tomorrow's patterns and possibilities. To see
deeper, unsee first.”

Umair
Haq

Is it possible to unlearn the
things we absolutely know to be true?

This odd but interesting question
emerged in a series of Twitter posts in the last day or so.

Umair Haq kicked it off when he
wrote the above sentence on Twitter: That seemed like an interesting thought.
So I retweeted it, with a link to other posts on radical management.

Shawn Callahan shot back (from
Australia): “Any suggestions on how to help people unsee?”

I replied (in Twitterese): “How
to help people unsee? Good question! 1. Humility. 2 Curiosity. 3. Listen . 4.
Story. More tomorrow.” Well, it’s now tomorrow and here are some further
thoughts.

In the meantime, Shawn replied to
his own question: “I suspect it's impossible to unsee. Rather we replace one
seeing (a story) with another. E.g. Robert Keagan's work.” [i]

To understand the issue, we need
to distinguish two kinds of situations. One is where we learn something about a
subject on which we had no strong habits, opinions or feelings. If I were to
study, say, rocket science, I would learn a lot of new things, but it wouldn’t
change my existing view of the world significantly. There would be little or
nothing to “unsee”.

The other situation is where I
learn something new about a subject on which I and others have strong habits, opinions
and feelings, many of which are so deep within me that I hardly know they are
there. In this situation, my experience is that it is difficult to absorb the
new learning, unless I come to terms with the habits, opinions and feelings that
I had about my old way of looking at things.

The
curious thing is that with these exponential changes, so much of what we
currently know is just getting to be wrong. So many of our assumptions are
getting to be wrong. And so, as we move forward, not only is it going to be a
question of learning but it is also going to be a question of unlearning. In
fact, a lot of us who are struggling in large corporations know first hand that
the hardest task is to get the corporate mind to start to unlearn some of the
gospels that have made them successful in the past and that no longer will
actually work in the future

It
turns out that this learning to unlearn may be a lot trickier than a lot of us
at first think. Because if you look at knowledge, and look at least two
different dimensions of knowledge, the explicit dimension and the tacit
dimension, the explicit dimension probably represents a tiny fraction of what
we really do know, the explicit being the concept, the facts, the theories, the
explicit things that live in our head. And the tacit turns out to be much more
the practices that we actually use to get things done with.

In fact we need to think about the brilliant
distinction that Bruner created some time ago called “learning to be”. It’s easy to learnabout something. The tacit is
learning to be. There is a tremendous difference between reading a physics book
and knowing all the laws of physics. It is something else to being a physicist.
And learning to be is what we are talking about when we are talking about this
tacit game.

Now
the problem is that an awful lot of the learning that we need to do is
obviously building up this body of knowledge, but even more so the unlearning
that we need to do has to do with challenging the tacit. The problem is that most
of us can’t easily get a grip on. It is very hard to reflect on the tacit
because you don’t even know that you know. And in fact, what you do know is
often just dead wrong. And it is almost impossible to change your beliefs about
something that is in the tacit and is different from what you happen to think.

Bringing
tacit knowledge up to the surface so that you can do something about it is
incredibly complicated. Not only do we in our bodies encode tacit knowledge but
our organizations encode tacit knowledge. And so as we try to change the way organizations
are run, we are actually trying to change the tacit as well as the explicit,
and the trouble with tacit knowledge is that it is almost impossible to get
hold of it, reflect on it, and work with it.

And of course, part of the power of stories, part of the power of the
narrative, is actually creating a framework that our mind seems to understand.
You can at least begin to think about how to challenge some of this type of
knowledge that is tacit.

Unlearning push

Here’s a recent
example. Lang Davison, a co-author of The Power of Pull (2010) was telling me recently about the workshops that were run
by the Deloitte’s Center for the Edge with their startling new findings, such
as that the rate of return on assets of US companies is one quarter of what it
was in 1965. The executives were unwilling to take the studies seriously. “They
are living a delusion,” Lang said, “and it’s all the more powerful as it’s a
collective delusion, as reflected by the capital markets. We even heard
executives say, in response to our findings about declining ROA, that it
couldn’t be that bad if the equity markets still value corporate institutions
so highly.”

These executives can’t absorb the
new learning until they have begun to unlearn what they absolutely and
definitely “know”. They have to unlearn. This is difficult because so much of
the knowledge is tacit. The knowledge constitutes a kind of spectacles through
which we view the world and we are not even conscious that we are wearing them.

Unlearning
traditional management

A similar situation that I am
grappling with right now is communicating the idea of radical management, which
involves a way of thinking, speaking and acting in the workplace that is
fundamentally different from traditional management. The differences can be easily
summarized in the table below.

I had no success in even communicating
the idea of radical management until I managed to describe the characteristics
of traditional management, and point out the specific differences. Before I did
that, when I talked about the new ideas involved in radical management, people
would say things like, “What’s new about that?” Or “We’re already doing that,”
when it was obvious to any observer that they weren’t.

How does
unlearning happen?

How does unlearning or unseeing
take place? As I suggested in the Twitter post, humility, curiosity and listening
are a big part of it. Story, as Shawn also points out, is also a huge part. It’s
about not just learning the new
story (explicit knowledge), but also living
the new story (tacit knowledge) until it becomes part of you. It’s not just understanding why the old story is
false. That helps, but you have to go beyond that. You have to live the new story.

Teaching other people how and why
the old story is false can also be a huge help in learning to unlearn.

But the unlearning (or unseeing)
doesn’t happen instantly. Even as I evangelize about the new kind of workplace,
where people are treated as people, and firm focuses on delighting clients, I
often find myself unwittingly slipping into the vocabulary of traditional
management. I speak about “engineering” a change, instead of inspiring a
change; I speak of the “HR Department”, instead of the people department; I
salute “the bottom line”, while ignoring “bad profits”; and so on.

And as I edit a second edition of The Leader's Guide to Storytelling , a book I wrote in 2005, I keep coming
across sentences that reek of traditional management. Weeding out this
anachronistic vocabulary is an arduous job. That’s because it’s the language
used in organizations, in business schools, and in management textbooks. And it’s
the language that I used as a manager for several decades.

But arduous or easy, the
unlearning has to happen. Unless it happens, we will continue to live the old
story.

i/ I don't know about Robert Keagan's work (Kegan?) I will leave this one to Shawn to expand on.

Radical Management vs Traditional Management

Radical management is a fundamentally
different way of organizing, thinking, speaking and acting in the workplace. The
differences between radical management and traditional management are summarized
in the following table:

Traditional
management

Radical
management

Goal

The
purpose of work is to produce goods or services.

The
purpose of work is continuous value innovation that delights clients.

August 13, 2010

In my post of yesterday, I wrote that asking
questions was necessary but not sufficient for radical management. The emphasis
in the post was on the “not sufficient”. At the same time, it’s important to keep in
mind that asking questions is necessary.

Take, for instance, this example from my book, The Leader's Guide to Storytelling about a comparative Harvard Business School study of teams of surgeons as they
introduced a new technique of minimally invasive cardiac surgery. All teams
came from highly respected institutions and received the same training, but
there were major differences in results. Some teams were able to halve their
operating time, while others failed to improve at all. In his wonderful book, Complications, Atul Gawande describes the differences between the
best and worst teams as follows:

Richard Bohmer, the one physician among the Harvard researchers, made
several visits to observe one of the quickest-learning teams and one of the
slowest, and he was startled by the contrast.

The surgeon on the fast-learning team was actually quite inexperienced
compared with the one on the slow-learning team—he was only a couple of years
out of training. But he made sure to pick team members with whom he had worked
well before and to keep them together through the first fifteen cases before
allowing any new members. He had the team go through a dry run before the first
case, then deliberately scheduled six operations in the first week, so little
would be forgotten in between. He convened the team before each case to discuss
it in detail and afterward to debrief. He made sure results were tracked
carefully. And as a person, Bohmer noted, the surgeon was not the stereotypical
Napoleon with a knife. Unbidden, he told Bohmer, “The surgeon needs to be
willing to allow himself to become a partner [with the rest of the team] so he
can accept input.” . . .

At the other hospital, the surgeon chose his operating team almost
randomly and did not keep it together. In his first seven cases the team had
different members every time, which is to say that it was no team at all. And
he had no pre-briefings, no debriefings, no tracking of ongoing results.[1]

Whereas the poorly performing team was led by a
Napoleonic style of leader—the sort who is “sometimes wrong but never in doubt,”
as the old saying goes—the team that did well benefited from a leader who was
willing to admit the possibility of doing better and who was willing to ask
questions.

The example brings home the meaning of Abraham Lincoln's dictum on leadership: "Nearly all men can stand
adversity, but if you want to test a man's character, give him power."[2]

August 12, 2010

"Steve, what's the role
of asking smart questions in radical management? Does the very act of
asking questions make someone a radical manager?"

The short answer is: not really. Asking questions is
necessary but not sufficient.

Radical management does require a spirit of inquiry
and curiosity, as well as a certain humility to realize that you may not have
the right answer to things, and even to recognize that a proportion of what you
firmly believe to be true is actually false. Asking open-ended questions does reflect that spirit
of inquiry and curiosity. But more is
required.

First, goals. The goal of radical management is to
delight clients, by creating a continuous stream of innovations that provide additional
value. If instead the manager operates
in an environment where the goal is simply to produce goods and services, then
the mere asking of questions will degenerate into various forms of cost-cutting
exercises, leading to downsizing and outsourcing, thereby undermining the firm’s
capacity to thrive and innovate in the medium term.

Second, modalities. Radical management is conducted
by self-organizing teams, operating in short cycles and adding value to clients
at the end of each cycle. This is quite different from the traditional bureaucracy
where individuals report to bosses. In a traditional bureaucracy, a manager who
asks questions may do better than one who doesn’t, but by itself, performance
will be limited by the stultifying nature of bureaucracy.

Third, transparency. Traditional management operates
on a need-to-know-basis, with many issues lying hidden, often for decades, with
well-known CYA routines. A manager who asks questions in such a setting will
get some answers, but the culture will prevent getting straight answers.

Fourth, continuous improvement. In a traditional
bureaucracy, whistleblowers get punished. In the learning organization,
whistleblowers get rewarded, but only if they also bring a
solution to the problem being identified. In
radical management, whistleblowers are rewarded, even if they don’t have a
solution: everything stops so that the root cause of the problem can be
identified and solved. In a bureaucracy, a manager who asks questions will be
at risk from his or her superiors: it’s much safer to keep one’s head down. In
radical management, the spirit of inquiry and curiosity reflected in open-ended
questions will be common.

So asking questions is necessary, but not
sufficient, to constitute radical management.

1/Dede Bonner, Ph.D., a.k.a. "the Question Doctor," is on the graduate business faculties of The George Washington University and Curtin University in Perth, Western Australia.
She is an internationally acclaimed expert in questioning skills and
money-saving "Best Questions" for CEOs and other clients.

July 04, 2010

When I was young and even more naive than I am today, I used to believe that if you did good work it would get recognition. If you did something that made a contribution and were able to prove it with hard numbers, rational people would inevitably recognize your success.

I was therefore somewhat surprised when I found that most of the great knowledge management programs that I observed in organizations were eventually closed down, sidelined or shifted to the periphery. The managements of these organizations didn’t seem to appreciate great KM accomplishments right in front of their noses.

I am not talking here about badly managed KM programs, such as programs with unclear goals, or no communities of practice, or an excessive reliance on IT to address human problems. I am talking about well-run internationally-recognized KM programs.

I saw the phenomenon at BP. I saw it at IBM. I saw it at Ernst & Young. I saw it at Hewlett Packard. I watched it happen to a certain extent after I left the World Bank. These were world-class programs, with demonstrated results that were not understood appreciated by the management. In due course, they were closed down or undermined or sidelined. Why?

These great KM programs would flourish for a while, and even receive some internal recognition. But then something would happen. For instance, there would be a merger: in the name of rationalization, the KM program would be declared a success and the leadership unit of the KM program would be gutted. Or there would be a cost-cutting drive, and the KM program would be one of the sacrifices. Or the organization would decide to appoint a leader of the knowledge program who was docile and didn’t rock the boat, so that the death became a long drawn-out affair.

Why, I asked myself, did managements act this way? Why didn’t they recognize that knowledge was the very lifeblood of these organizations? Why didn’t they examine the metrics of success? Why did they take such thoughtless decisions, almost by accident, and kill something of central importance to their organization’s future?

It’s not just knowledge management!

One clue came from the recognition that the phenomenon wasn’t limited to knowledge management.

I noticed the same phenomenon in lean manufacturing, which was invented at Toyota in the 1950s and introduced into the USA in the 1980s. A collaborative review of the phenomenon was conducted and reported in 1990 in the landmark book, The Machine That Changed The World, by James Womack, Daniel Jones, and Daniel Roos. In the study, the top-rated plant—globally— in terms of quality and productivity wasn't a Japanese plant. It was a Ford plant in Hermosillo, Mexico. So you would think that Ford would be so proud and grateful that it would celebrate and replicate the success elsewhere. Just the opposite happened. The Hermosillo plant was doing things “differently” from the rest of Ford and so it was “brought back into line”. In effect, the innovation was killed.

Intrepid managers didn’t give up. The Hermosillo experience was emulated in Ford in the 1990s at the Romeo engine plant in Michigan. But Ford eventually forced the successful start-up plant manager to resign and replaced him with a succession of more conservative appointments.

So even when an oasis of excellence and innovation is established within an organization being run on traditional management lines, the experience doesn’t take root and replicate throughout the organization because the setting isn’t congenial. The fundamental assumptions, attitudes and values are at odds with those of traditional management.

What are the values and attitudes that kill knowledge management? What are these fundamental assumptions, attitudes and values of traditional management, that tend to kill all creative and innovative activities in a firm? They are fairly well-known. They are taught in business schools. They are present in management textbooks. They are heard as a regular drum-beat in that Vatican of management: Harvard Business Review.

The first assumption is that the standard practices of traditional management—hierarchy, command-and-control, tightly planned work, competition through economies of scale and cost reduction, impersonal communications—are a success. Indeed, managerial discourse in these firms proceeds as though these practices reflect timeless truths of the universe, so obvious that there is scarcely any need to articulate them, let alone re-examine them. There is an inability to admit that these managerial practices arose as a response to a specific set of social and economic conditions. Now that those conditions have changed, the validity of the principles is a serious issue.

The second plank is an unwillingness to take seriously any evidence to the contrary. Lang Davison, a co-author of The Power of Pull (2010) was telling me recently about the workshops that were run by the Deloitte’s Center for the Edge with their startling new findings, such as that the rate of return on assets of US companies is one quarter of what it was in 1965. The executives were unwilling to take the studies seriously. “They are living a delusion,” Lang said, “it’s all the more powerful as it’s a collective delusion, as reflected by the capital markets. We even heard executives say, in response to our findings about declining ROA, that it couldn’t be that bad if the equity markets still value corporate institutions so highly.” The third assumption of traditional management is that the marketplace can be predicted and controlled and manipulated. Fifty years ago, this was a reasonable assumption. Big companies were oligopolies and controlled the marketplace. There was high demand for their products and services. After the Depression and the war, people were happy to have any refrigerator or television. Customers had little access to reliable information. And with only three television channels, big companies could control the airwaves. New entrants into the marketplace were not a serious threat. Global competition was still in the future.

Traditional management was a good fit for this setting. But it is a very poor fit with the world of 2010, where global competition and the shift of power from sellers to buyers have transformed the situation. Big companies are no longer in control of the marketplace. Providing goods and services are no longer enough. To assure their future, they have to establish relationships with customers and win their delight, not merely their satisfaction. This is a radical change in the challenge faced by firms today. Instead of a simple linear manipulation, firms are now involved in complex interactions.

The fourth plank of traditional management is to view employees as “human resources” i.e. things that can be controlled and manipulated and exploited. So long as the firm was merely providing goods and services to the marketplace, it could give commands to employees as to what to do and control them to make sure that they did what they were told. Once the challenge became one of having interactions with customers and creating a steady flow of innovations and new value to customers so that they would be delighted, the firm depended on its employees to generate those innovations and interactions. Smart firms discovered that the energy and enthusiasm and insights of its employees—now often highly educated—couldn’t be bought or directed or commanded and controlled. Instead, employees had to be inspired to contribute—a radically different and more difficult challenge. Again it was a shift from a simple linear manipulation to a complex interaction.

The fifth plank of traditional management is to view the firm as an entity exploiting a static stock of knowledge, through “scalable efficiency”. Traditional management hasn’t grasped that the game has changed. Today’s customers demand not merely average products based on static knowledge stocks. Instead they want rather something new that will interest, excite and even delight them. Whereas in the 20th Century customers had few choices and little access to information, now thanks to global competition, they have many choices. Also, thanks to the Internet, they have instant access to accurate information about what the choices really are. If customers are not delighted, they will go elsewhere. Today what is needed is “scalable innovation”, which depends on innovation and flows of new knowledge—the life-blood of real knowledge management.

The sixth plank is economies of scale. Becoming bigger enables the firm to achieve economies of scale. But in the process, traditional management encounters the experience curve and the phenomenon of declining returns. The more experience the firm has, the longer it takes for the next performance increment of improvement. This is discouraging and tends to result in managerial “flailing”, as managers desperately try to make further gains in a setting that doesn’t permit it.

What makes it difficult to change traditional management is the interlocking and self-reinforcing nature of these assumptions, attitudes and values. Once the goal of the firm is established as producing goods and services or making money for the shareholders in a predictable economic environment, scalable bureaucracy and the efficient management of existing knowledge stocks are seen as appropriate responses. The firm develops proprietary knowledge. It aggressively protects that knowledge to make sure no one else gets access to it, and it extracts the value from that knowledge as efficiently as possible and for as long as it can. The rationale of the firm is to minimize transaction costs in deploying these stocks of knowledge efficiently. That way of thinking and acting created huge and seemingly successful companies in the 20th Century.

But it is a failing proposition in the world today. The life expectancy of Fortune 500 companies has fallen from around 50 years half a century ago to less than 15 years. If trends continue, Deloitte’s Center for the Edge predicts that it will fall to 5 years.

Why KM programs tend to get killed

So the root cause of KM programs being killed is that KM is incompatible with the underlying philosophy of traditional management, which no longer fits the world of today. In 1950, it was not unreasonable for large companies to think that the world is predictable and linear and can be controlled and manipulated. They could manipulate customers. They could manipulate employees. They could protect and exploit existing stocks of knowledge and in the process make a killing.

In 2010, this approach is an increasingly bad fit with the economic context. The result is increasingly desperate and flailing efforts to maintain control, to cut costs, to downsize and outsource, even as those very efforts become more and more counter-productive.

So we should not be surprised that great KM programs repeatedly become victims of this managerial flailing. In a world in which the game consists of exploiting static knowledge stocks and achieving scalable efficiency, knowledge management programs are perceived as “costs” that can be cut with negligible loss. So it is natural that in the midst of a cost-cutting drive, or an outsourcing or a downsizing, killing the KM program can be seen as an obvious quick win. It is a low hanging fruit that enables the firm to meet its quarterly revenue targets, even as it hamstrings the firm’s ability to thrive for the future.

It hardly matters that the KM program has—for a time—the support of the senior level of the organization. With a steady influx of new managers, all trained at business schools, weaned on standard management textbooks, avid followers of HBR, and armed with sharp cost-cutting knives, it is only a matter of time before they get the chance to bring the firm back into line with the assumptions of traditional management and gut the KM program.

What’s the alternative?

What’s exciting is that some firms are proceeding in a radically different way of organizing and managing. They are proceeding on a different of interlocking assumptions, which begin from the goal of delighting clients and providing a steady stream of new value to customers. Once this becomes the goal of the entire firm (not just the goal of the marketing or the R&D department), then bureaucracy and command-and-control cease to be a viable organizational option.

Instead the firm will naturally gravitate toward some variation of self-organizing teams as the default model for organizing work. That’s because it is only through mobilizing the full energy and ingenuity of the workforce that the firm is likely to have any chance of success at generating the continuous innovation needed to delight clients.

Once the firm adopts self-organizing teams aimed at delighting clients, downsizing and outsourcing are seen in their true light as counterproductive to everything the firm is trying to accomplish. Instead, doing work in an iterative fashion and providing value in each iteration are the norm. Radical transparency between managers and workers becomes a necessary principle for achieving the goal. Happily, when firms get into this mode, the risk of needing to downsize or outsource its core business is reduced: continuous self-improvement is a normal and natural way in which self-organizing teams evolve toward high-performance. Systematically accessing new knowledge flows--aka knowledge management--becomes central to the firm's future.

This is a radically different way of organizing and managing. Whereas traditional management is a downward spiral with negative economic, moral, and social consequences radical management is a virtuous circle with happy consequences for firm productivity, job satisfaction, and client delight.

What does this all mean for KM?

So what’s a knowledge manager in an established organization to do? How do you protect your program against inevitable death threat posed by traditional management?

The first step is to make sure that your ship is seaworthy. Check to make sure that your KM program is well managed, with clear goals, vibrant communities of practice, effective use of IT and social media (though without excessive reliance on IT), and valid metrics of the KM program’s contributions. Without those elements in place, your KM program will be a sitting target for a cost-cutting traditional manager.

The second step is to make sure that your KM program is focused on supporting innovation and learning, and drawing on flows of new knowledge, including knowledge from outside the firm, not merely re-circulating the internal dogmas of yesterday.In this way, your KM program can be a genuine contributor to the firm’s real future.

The third step is to check: what are the overall goals of your organization? If your firm is already committed to radical management, you are in good shape. But if the firm is built around traditional management--producing goods and services, and making money for the shareholders, through “scalable efficiency”, then your KM program is at risk, no matter how well run it may be, and how matter how much you can demonstrate what it is contributing to the firm today. With the attitudes and practices of traditional management in place, it is only a matter of time before your KM program will become another victim.

The choices here are to brace your program—and your own career—for the inevitable death blow, or persuade the organization to embrace radical management.